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Imagining a New Bretton Woods

The 1944 Bretton Woods conference featured a clash between Harry Dexter White, the US representative, and John Maynard Keynes, representing a fading British Empire. Today, a straightforward question must be asked: Would Keynes’s discarded plan be more appropriate for our post-2008 multipolar world?

AUSTIN, TEXAS – The financial meltdown of 2008 prompted calls for a global financial system that curtails trade imbalances, moderates speculative capital flows, and prevents systemic contagion. That, of course, was the goal of the original Bretton Woods system. But such a system today would be both untenable and undesirable. So, what might an alternative look like?

The 1944 Bretton Woods conference featured a clash of two men and their visions: Harry Dexter White, President Franklin Roosevelt’s representative, and John Maynard Keynes, representing a fading British Empire. Unsurprisingly, White’s scheme, founded on the United States’ post-war trade surplus, which it deployed to dollarize Europe and Japan in exchange for their acquiescence to full monetary-policy discretion for the US, prevailed. And the new post-war system provided the foundation for capitalism’s finest hour – until America lost its surplus and White’s arrangement collapsed.

The question asked periodically during much of the last decade is straightforward: Would Keynes’s discarded plan be more appropriate for our post-2008 multipolar world?

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It is clear that the International Monetary System needs urgent Reform, if it is to be fit for the 21st Century. The Big Issue is finding clear and correct answer to the How, especially the DOING of How.

Essentially, the idea is for an ICU to compensate for when private capital flows are not offsetting persistent current account imbalances. Setting this up globally is probably far too hard a task, but regionally it may be do'able? It could be set up within the EU and wider Europe, but there is probably no possibility of ICU tax transfers without conditions attached and these are unlikely to be caring or easy. And there will be threshold conditions. The fact is that one third of world economies run persistent trade surpluses and two thirds persistent trade deficits and we should not expect to force everyone towards balance or towards one-way only of achieving GDP growth. There are also different economic cycles in the world and hence the calculation of when countries deserve to receive transfers and how those should be deployed would be politically extremely complicated among countries that do not share some global regional or other close association where at least there can be some sense of mutual interest?

When the need to curb carbon emissions is factored in this proposal is eminently sensible. A transaction tax on trade surpluses can fund emissions reductions and everybody wins, or rather, everybody avoids catastrophic losses due to climate change. (cue adverse comments from some aging men who have an allergic reaction to proposals for state intervention to protect the interests of the young)

Yanis could have just suggested throwing the Germans out of the euro, but this proposal is useful, and doable with digital machines and a clever market structure. He is clearly more than a snappy dresser.

My difficulty with Yanis Varoufakis is that I usually agree with what he writes. But then I remember how angry he made me and a lot of other people by failing to introduce a local currency in Greece, parallel to the euro, and thereby provide the liquidity for the Greek economy to function. He would as well have put down a historical marker in the development of the eurozone. Then I remember the feeling of disgust when he explained that he did not have the technical skills to do it. Why did he take the job?

That's the problem too with a new Bretton Woods - it is all in the technical details as well as the political will. Seriously competent people have tried and failed in the past to reform the system, Paul Volkers for one. Look around the current political-economic world. Where are the combinations of moderate political forces to create such reforms? If they exist, they are leaving it very late. The euro is run in German economic interest. Just to change even that and balance the eurozone has proved impossible? Now there are more extreme views - and no longer on the sidelines, Trump, LePen, .... pointing out the failures of the present system to deliver growth in wages and employment. The reform of Bretton Woods will come, but we might not like the way it happens.

Yanis, thank you for this article and many if the pints raised are valid. We certainly need to some reforms to the global economic system and I look forward to what proposals are offered in the future.

I never thought the would come the day post Bretton Woods that I would see valid argument to bring back Keynesian economics but if this is an effective Qatari reform then do be it.

{Above all, the new system would reflect Keynes’s view that global stability is undermined by capitalism’s innate tendency to drive a wedge between surplus and deficit economies.}

This is where Varoufakis has got it wrong.

It's not Capitalism that is at fault, but the manner in which it is deployed. Unless, of course, he’d like to go back to bartering, which capitalism replaced a great many centuries ago. And what is faulty about the present version of Capitalism is its lack of International Control.

The Panama Papers scandal is still evolving, but the latest estimate is that there is as much as 12 trillion dollars in assets that have fled Russia, China and various other countries. All of which is, of course, someone’s untaxed assets beyond local tax authorities.

The amount is massive and simply shows how nonexistent are the control mechanisms necessary to assure “parentage” of the illicit funds. Fix that problem of parentage and regardless of where the money is in the world, it can be taxed and perhaps even repatriated.

More importantly, however, is the problem of thievery. The funds in question were not earned “honestly”. Particularly those resulting from, for instance, the Putin Mob’s illicit capture of Mineral Assets (petroleum, gas, etc.) that belonged to the Russian people.

Most of whom presently are undergoing major hardship and deprivation due to a recession in Russia. Those illicit funds could go a long way towards rebuilding Russia’s market-economy dynamic.

So, yes, something should be done, but no, nothing will likely be done. This problem has been festering since the early 1990s, when both the Iron and Bamboo Curtains came crashing down and a class of crooks inveigled those in power to participate in the wholesale purloining of state assets that were either bought on the cheap or simply stolen outright.

The people responsible should go to jail rather than enjoy their summers at mansions in St. Tropez on the seaside …

I suggest we immediately rename the Bancor and call them Credits or International Credit Unit (ICU). The narrative will still hold with this abbreviation.
It makes sense to level the field between debtor and creditor as we're just talking about money, the flow of which is essential to any functioning economy. This proposal is a great introduction to a post-capitalist financial system where money is treated like a resource to be channeled around rather than instrument of personal wealth and privilege.

Very good article. But I've disagree about the technological limitation. The bancor is only a banking money, it is created and destroyed like any credit operation in domestic financial system. Lord Keynes said exactly it in the "Keynes Plan" (1941) and in the British Plan (1942 e 1943). The problem was not tecnological, was (and yet is) of power to reform the Monetary Internacional System.

Because trade imbalances affect profits dollar for dollar (Kalecki's profit equation) the tax cannot be symmetrical on debt and creditor nations. Punishing a country that has lost profits is just piling on. A better solution is to tax official foreign reserves that finance trade deficits (i.e. not all reserves). In a multi-lateral world, there is an attribution equation that can determine who should pay the tax for imbalanced trade. It is like a tax on sovereign wealth funds or govts taxing other govts for lack of cooperation. This tax would play the same role as gold flows by inducing balanced trade. Retaliation would be futile because it would result in a larger tax to be paid. You can read "Where do Profits Come From? The Road to Economic Prosperity" for more details.

Is the narrative of the Yanis On Keynes Brotton wood global financial architecture? Keynes proposed netural global currency perhaps under UN control with gold standard or similar idea was overruled by then dominant creditor country and surplus current account holder US as a nation perhaps to protect its financial interests and global political and economic control and domination through its dollor currency.

Author has taken banker under IMF equating to SDRs and global levy against surplus countries and generating global fund for punishing some and adjustments to deficit countries are impractical figments of imagination with out any rational or logical basis.As long as no global regulating power with power to punish any errant national behaviour from global standards based on rational basis laid by perhaps like world government, the idea appears to be and may be utopianiam like global equality tax by some left utopian?

White was, as you well know, a Soviet spy with a clear geopolitical agenda, namely that of creating a dollar - centric global financial architecture. His other goal was that of undermining for good the pre-eminent position of the British pound, which he succeded in doing. Starved of gold and dollars, the British empire imploded rapidly in the wake of the Bretton Woods.

I see, a sort of Sweeney Todd the Barber offering automatic haircuts to debtors. That'll encourage creditors. Can't you acheive this via standard contracts. No? Perhaps thats because people would sign them unless it was packaged as insurance, putting the cost of credit up

Communism works on paper, EU works on paper, Keynes works on paper, UN works on paper. In real life, they're all failures. Maybe one of these days you wake up to this fact, though I am not holding my breath for that.

Roosevelt belong with his brothers in crime, and old Radio Demagogues of the 30s: Hitler, Stalin, Churchill, Mussolini, etc. Let them stay dead and buried.

The reason it was not implemented is that the US had a large surplus and was providing Marshal Plan to Europe which created this situation. When Keynes proposed his plan at Bretton Wood, US wanted to maintain its current position decided not to go along with it.

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